Test bank for principles of cost accounting 15th edition vanderbeck

The Macke Company’s payroll summary showed the following in November: Sales department salaries $10,000 Supervisor salaries 20,000 Assembly workers’ wages 25,000 Machine operators’ wages

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CHAPTER 1—INTRODUCTION TO COST ACCOUNTING

PTS: 1 DIF: Easy REF: P OBJ: Introduction

NAT: IMA 4 - Business Applications TOP: AACSB - Analytic

2 The business entity that purchases finished goods for resale is a:

The business entity that purchases finished goods for resale is a merchandiser

3 The type of merchandiser who purchases goods from the producer and sells to stores who sell to the consumer is a:

4 Examples of service businesses include:

a Airlines, architects, and hair stylists

b Department stores, poster shops, and wholesalers

c Aircraft producers, home builders, and machine tool makers

d None of these are correct

ANS: A

Examples of service businesses include airlines, architects, and hair stylists

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PTS: 1 DIF: Moderate REF: P OBJ: Introduction

NAT: IMA 4 - Business Applications TOP: AACSB - Reflective

5 ISO 9000 is a set of international standards for:

a determining the selling price of a product

b cost control

c quality management

d planning,

ANS: C

ISO 9000 is a set of international standards for quality management

NAT: IMA 3A - Strategic Planning TOP: AACSB - Analytic

6 Unit cost information is important for making all of the following marketing decisions except:

a Determining the selling price of a product

b Bidding on contracts

c Determining the amount of advertising needed to promote the product

d Determining the amount of profit that each product earns

ANS: C

Unit cost information is used in determining selling price, bidding on contracts and determining product profitability, but would not have a bearing on determining how much the product would need

to be advertised

PTS: 1 DIF: Moderate REF: P OBJ: 1

NAT: IMA 3B - Strategic Marketing TOP: AACSB - Analytic

7 The process of establishing objectives or goals for the firm and determining the means by which they will be met is:

PTS: 1 DIF: Easy REF: P OBJ: 1

NAT: IMA 2A - Budget Preparation TOP: AACSB - Analytic

8 Control is the process of monitoring the company’s operations to determine whether the company’s

objectives are being achieved Effective control is achieved through all of the following except:

a periodically measuring and comparing company results

b assigning responsibility for costs to employees responsible for those costs

c constantly monitoring employees to ensure they do exactly as they are told

d taking necessary corrective action when variances warrant doing so

ANS: C

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While periodically measuring and comparing company results, assigning responsibility for those results to employees and taking necessary corrective action are all part of control; it does not include constantly monitoring employees to make sure they are following directions

NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic

9 Aaron Smith is the supervisor of the Machining Department of Bennett Corporation He has control over and is responsible for manufacturing costs traced to the department The Machining Department

NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective

10 Which of the following items of cost would be least likely to appear on a performance report based on

responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?

11 Which of the following items of cost would be least likely to appear on a performance report based on

responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?

PTS: 1 DIF: Hard REF: P OBJ: 1

12 Responsibility accounting would most likely hold a manager of a manufacturing unit responsible for:

a cost of raw materials

b quantity of raw materials used

c the number of units ordered

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d amount of taxes incurred

13 Which of the following statements best describes a characteristic of a performance report prepared for use by a production line department head?

a The costs in the report should include only those controllable by the department head

b The report should be stated in dollars rather than in physical units so the department head

knows the financial magnitude of any variances

c The report should include information on all costs chargeable to the department, regardless

of their origin or control

d It is more important that the report be precise than timely

ANS: A

The performance report should include only those costs controllable by the department head It shouldalso be timely and should include production data as well as dollar amounts

14 Joshua Company prepares monthly performance reports for each department The budgeted amounts

of wages for the Finishing Department for the month of August and for the eight-month period ended August 31 were $12,000 and $100,000, respectively Actual wages paid through July were $91,500, and wages for the month of August were $11,800 The month and year-to-date variances, respectively,for wages on the August performance report would be:

Calculation of monthly variance:

Budgeted wages for August $12,000

Actual wages for August 11,800

Calculation of year-to-date variance:

Budgeted wages for the eight-month period ended August 31 $100,000

Actual wages for the eight-month period ended August 31 (91,500 + 11,800) 103,300

Variance for eight-month period ended August 31 $ 3,300 U

15 As a result of recent accounting scandals involving companies such as Enron and World Com, the Sarbanes-Oxley Act of 2002 was written to protect shareholders of public companies by improving

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NAT: IMA 4 - Business Applications TOP: AACSB - Ethics

16 Which of the following is not a key element of the Sarbanes Oxley Act to improve corporate

governance?

a The establishment of the Public Company Accounting Oversight Board

b Requiring a company’s annual report to contain an internal control report that includes

management’s opinion on the effectiveness of internal control

c Severe criminal penalties for retaliation against “whistleblowers”

d Requiring that the company’s performance reports are prepared in accordance with

generally accepted accounting principles

ANS: D

The Sarbanes-Oxley Act does not require that companies prepare performance reports in accordance with generally accepted accounting principles

NAT: IMA 4 - Business Applications TOP: AACSB - Ethics

17 Cost accounting differs from financial accounting in that financial accounting:

a Is mostly concerned with external financial reporting

b Is mostly concerned with individual departments of the company

c Provides the additional information required for special reports to management

d Puts more emphasis on future operations

ANS: A

Items (b) through (d) are characteristics of cost accounting, whereas Item (a) is a feature of financial accounting

NAT: IMA 2E - External Financial Reporting TOP: AACSB - Reflective

18 Taylor Logan is an accountant with the Tanner Corporation Taylor’s duties include preparing reports that focus on both historical and estimated data needed to conduct ongoing operations and do long-range planning Taylor is a(n)

a certified financial planner

b management accountant

c financial accountant

d auditor

ANS: B

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A management accountant prepares reports that focus on both historical and estimated data that are used to conduct ongoing operations and do long-range planning Financial accountants prepare financial statements needed by external users to evaluate a business, while auditors conduct

examinations on those financial statements A certified financial planner is a consultant that helps individuals with financial planning, including investment advice

NAT: IMA 4 - Business Applications TOP: AACSB - Reflective

19 The following data were taken from Mansfield Merchandisers on January 31:

Merchandise inventory, January 1 $ 90,000

Merchandise Available for Sale $650,000

Less Merchandise Inventory, January 31 65,000

Cost of Goods Sold $585,000

NAT: IMA 2B - Cost Management TOP: AACSB - Analytic

20 Umberg Merchandise Company’s cost of goods sold last month was $1,350,000 the Merchandise Inventory at the beginning of the month was $250,000 and there was $325,000 of Merchandise Inventory at the end of the month Umberg’s merchandise purchases were:

Cost of Goods Sold $1,350,000

Plus Ending Merchandise Inventory 325,000

Merchandise Available for Sale 1,675,000

Less Beginning Merchandise Inventory 250,000

Merchandise Purchases $1,425,000

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21 Ashley Corp had finished goods inventory of $50,000 and $60,000 at April 1 and April 30,

respectively, and cost of goods manufactured of $175,000 in April Cost of goods sold in April was:

Finished Goods Inventory, April 1 $ 50,000

Plus Cost of Goods Manufactured 175,000

Finished Goods Available for Sale 225,000

Finished Goods Inventory, April 30 60,000

22 The balance in Kayser Manufacturing Company’s Finished Goods account at November 30 was

$825,000 Its November cost of goods manufactured was $2,350,000 and its cost of goods sold in November was $2,455,000 What was the balance in Kayser’s Finished Goods at November 1?

of Goods Sold is also the finished goods available for sale Therefore, the equation can be rearranged

to compute the beginning balance in Finished Goods as follows:

Cost of Goods Sold $2,455,000

Plus Finished Goods Inventory, November 30 825,000

Finished Goods Available for Sale 3,280,000

Less Cost of Goods Manufactured 2,350,000

Finished Goods Inventory, November 1 $ 930,000

23 Inventory accounts for a manufacturer include all of the following except:

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24 For a manufacturer, the total cost of manufactured goods completed but still on hand is:

25 For a manufacturer, manufacturing costs incurred to date for goods in various stages of production, butnot yet completed is:

26 For a manufacturer, the cost of all materials purchases and on hand to be used in the manufacturing process is:

27 In the financial statements, Materials should be categorized as:

a Revenue

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NAT: IMA 2E - External Financial Reporting TOP: AACSB - Reflective

28 A(n) requires estimating inventory balances during the year for interim financial

statements and shutting down operations to count all inventory items at the end of the year

a periodic inventory system

b inventory control account

c perpetual inventory system

d inventory cost method

ANS: A

A periodic inventory system requires a company to make estimates of inventory balances throughout the year, and a complete physical count of inventory at the end of the year A perpetual inventory system provides a continuous record of purchases, issues and inventory balances The inventory balances are verified with periodic counts of selected inventory items throughout the year

29 Witt Company, like most manufacturers, maintains a continuous record of purchases, materials issued into production and balances of all goods in stock, so that inventory valuation data is available at any time This is an example of a(n)

a perpetual inventory system

b inventory control account

c periodic inventory system

d inventory cost method

ANS: A

A perpetual inventory system maintains a continuous record of purchases, issues and inventory balances A periodic inventory system requires a physical count of all inventory at the end of the year and estimates of inventory balances throughout the year when preparing interim financial statements.PTS: 1 DIF: Easy REF: P OBJ: 3

NAT: IMA 2B - Cost Management TOP: AACSB - Reflective

30 Which of the following is most likely to be considered an indirect material in the manufacture of a sofa?

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31 The Macke Company’s payroll summary showed the following in November:

Sales department salaries $10,000

Supervisor salaries 20,000

Assembly workers’ wages 25,000

Machine operators’ wages 35,000

Maintenance workers’ wages 15,000

Accounting department salaries 5,000

What is the amount that would be included in direct labor in November?

Assembly workers and machine operators would be considered direct labor

Assembly workers’ wages $25,000

Total direct labor $60,000

The supervisors and maintenance workers would be included in overhead, while the sales and

accounting department salaries would be included in selling and administrative expense

32 The Macke Company’s payroll summary showed the following in November:

Sales department salaries $10,000

Supervisor salaries 20,000

Assembly workers’ wages 25,000

Accounting department salaries 5,000

What is the amount that would be included in factory overhead in November?

Total direct labor $35,000

The wages of the assembly workers and machine operators would be included in direct labor, while thesales and accounting department salaries would be included in selling and administrative expense

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33 Factory overhead includes:

a Indirect labor but not indirect materials

b Indirect materials but not indirect labor

c All manufacturing costs, except indirect materials and indirect labor

d All manufacturing costs, except direct materials and direct labor

ANS: D

Factory overhead includes all manufacturing costs except direct materials and direct labor

34 A typical factory overhead cost is:

a Freight out

b Stationery and printing

c Depreciation on machinery and equipment

d Postage

ANS: C

Depreciation on machinery and equipment is a factory overhead cost because it is a manufacturing costthat is not direct labor or direct material The other three items are marketing or administrative expenses

35 Factory overhead would include:

a Wages of office clerk

b Sales manager’s salary

c Supervisor’s salary

d Tax accountant’s salary

ANS: C

The supervisor’s salary is considered indirect labor because the supervisor is required for the

manufacturing process, but does not work directly on the units being manufactured Indirect labor is included in factory overhead The office clerk’s wages, sales manager’s salary and tax accountant’s salary are marketing or administrative costs

36 The term "prime cost" refers to:

a The sum of direct labor costs and all factory overhead costs

b The sum of direct material costs and direct labor costs

c All costs associated with manufacturing other than direct labor costs and direct material

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37 The following data are from Burton Corporation, a manufacturer, for the month of September:

Direct materials used $135,000

Supervisors’ salaries 6,000

Sales office rent and utilities 22,000

Prime costs include direct materials and direct labor Of the salaries and wages listed, only the wages

of the machine operators would be considered direct labor as they are the only employees listed who would actually work on the products themselves

Total prime costs $335,000

38 The term "conversion costs" refers to:

a The sum of direct labor costs and all factory overhead costs

b The sum of direct material costs and direct labor costs

c All costs associated with manufacturing other than direct labor costs

d Direct labor costs incurred to produce units of output

ANS: A

The term "conversion costs" refers to the sum of direct labor costs and all factory overhead costs.PTS: 1 DIF: Easy REF: P OBJ: 4

39 The following data are from Burton Corporation, a manufacturer, for the month of September:

Supervisors’ salaries 6,000

Sales office rent and utilities 22,000

Machine depreciation 35,000

Secretary to the Chief Executive Officer salary 3,000

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considered factory overhead because their efforts are essential to the manufacturing process, however they do not actually work on the products themselves The sales office costs and the salary of the secretary would be marketing and administrative expenses as they do not contribute to the

Total conversion costs $256,000

40 Payroll is debited and Wages Payable is credited to:

a Pay the payroll taxes

b Record the payroll

c Pay the payroll

d Distribute the payroll

ANS: B

When the payroll is recorded, Payroll is debited and Wages Payable is credited When payroll taxes are paid, the various liability accounts are debited and Cash is credited When the payroll is paid, Wages Payable is debited and Cash is credited When the payroll is distributed, Work in Process, Factory Overhead, and Selling and Administrative Expenses are debited and Payroll is credited.PTS: 1 DIF: Moderate REF: P OBJ: 5

41 Which of the following is not a cost that is accumulated in Work in Process?

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42 At a certain level of operations, per unit costs and selling price are as follows: manufacturing costs,

$50; selling and administrative expenses, $10; selling price, $80 Given this information, the mark-on percentage to manufacturing cost used to determine selling price must have been:

43 Mountain Company produced 20,000 blankets in June to be sold during the holiday season The manufacturing costs were:

Total manufacturing costs $240,000

$240,000 / 20,000 units = $12.00 cost per unit

44 Mountain Company produced 20,000 blankets in June to be sold during the holiday season The manufacturing costs were:

Direct materials $125,000

Direct labor 55,000

Factory overhead 60,000

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Management has decided that the mark-on percentage necessary to cover the product’s share of selling and administrative expenses and to earn a satisfactory profit is 30% The selling price per blanket should be:

Total manufacturing costs $240,000

$240,000 / 20,000 units = $12.00 cost per unit

$12.00 x 30% = $3.60 + $12.00 = $15.60

45 The statement of costs of goods manufactured shows:

a Office supplies used in accounting office

b Deprecation of factory building

c Salary of sales manager

d Rent paid on finished goods warehouse

ANS: B

The depreciation of the factory building is a cost necessary to manufacture goods The office supplies, sales manager’s salary and warehouse rent are marketing and administrative costs and would not be included in the Statement of Cost of Goods Manufactured

46 Selected data concerning the past fiscal year's operations (000's omitted) of the Stanley Manufacturing Company are presented below:

INVENTORIESBeginning Ending

Other data:

Total manufacturing costs charged to production during

the year (includes direct materials, direct labor, and factory

Cost of goods available for sale 765

Selling and general expenses 250

Assuming Stanley does not use indirect materials, the cost of materials purchased during the year amounted to:

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